Faiz Kermani of Chiltern International has been following developments in the French pharmaceutical sector and provides this run-down of recent activities
France has been one of the major forces in the European pharmaceutical industry.
According to the French pharmaceutical industry body, Leef (Les entreprises du medicament), since 1995, France has been the leading drug producing nation within the European Union.
Leem members account for 98.7% of pharmaceutical R and D activities in France.
On a national basis, France remains the third largest producer of pharmaceuticals worldwide and it has been attempting to maintain its strong position despite an unfavourable economic climate.
Cost containment causes concern France has one of the strictest pricing systems in Europe and government cost containment measures have been extremely unpopular with the industry.
European comparisons carried out by the industry have shown that French prices are around 15% lower than those in the UK and Germany.
France remains one of the highest spending nations on pharmaceuticals and successive government have pursued cost containment policies as a means to drive down spending on pharmaceuticals.
A recent survey by the Organisation for Economic Co-operation and Development (OECD) revealed that pharmaceuticals accounted for more than 10% of total health spending in most countries, but that in France they accounted for over 20% of healthcare spending.
A combination of low prices and a high level of government-reimbursement have given patients and physicians little incentive to cut consumption.
Ups and downs.
With government policies exerting downward pressure on profitability and a notable increase in company mergers, France's industry is now at a crossroads. The change in the French pharmaceutical landscape has been dramatic.
In the 1950s there were around 1000 companies involved in the sector and this dropped to around 300 in 2002.
On the one hand there are positive signs for France's R and D future. For example, Leef estimates that the numbers of pharmaceutical staff have tripled in 20 years and that over 1000 new posts are being created by the industry every year.
At present, the industry employs around 100,000 personnel with about 18% of these being involved in R and D functions.
The number of personnel involved in R and D has increased from 14% in 2001, indicating favourable conditions for pharmaceutical research in France.
In particular, demand for clinical R and D staff appears to be at an all time high.
Figures from Leef reveal that a considerable amount of clinical research is being conducted in France - especially in the cancer therapeutic area.
They estimate that around 12,000 pharmaceutical industry staff are working on projects associated with breast cancer alone.
However, other signs are less encouraging and point to an erosion of France's underlying research base.
For a start the industry has seen a marked increase in the taxation of its income - between 1997 and 2001, industry figures reveal that the level of such taxes tripled.
In an industry, where sales growth is often in the double digit range, the French industry's figures have tended to be closer to the 8% mark and companies link this to government cost containment and taxation policies.
As the pharmaceutical industry uses its profits to determine the level of reinvestment in R and D, this has led to some multinational companies shifting new investment to foreign markets where they consider the conditions for long-term profitability more favourable.
Behind the scenes there may be even bigger problems for France, because as a whole, the European industry has been concerned that its position is becoming weaker relative to the dominant US industry.
According to the European Federation of Pharmaceutical Industry Associations (EFPIA), in 1990, pharmaceutical R and D investment in the USA represented less than 70% of that in Europe, but R and D investment in the USA has now overtaken that in Europe.
A drying up of talent? An associated problem has been a drift of scientific talent across the Atlantic, as it is these individuals who are needed to drive European industry forward.
As a percentage of total graduates, the number of individuals from Europe that seek work in the USA may not actually be that high, but they often represent the high quality graduates in demand by companies in Europe on the verge of success.
For example, the National Science Foundation has estimated that foreign students account for 40% of US advanced degrees in biology and chemistry and these include many students from Europe.
Given that 60% of foreign students stay on in the USA after their degrees to fill senior scientific positions, without affirmative action, the situation for research in Europe could be adversely affected.
In response to this situation, the European Council of Ministers called on EU member states to devote 3% of their gross domestic product (GDP) to research, but France actually cut back on research.
In March 2004, over 2000 leading French scientists and researchers resigned en masse and 70,000 scientists signed a petition to protest at government funding cuts.
For example, France's prestigious national science research centre, the Centre National de Recherche Scientifique (CNRS) is still owed half its research funding for 2002.
Examples to take heed of.
There are signs that the French government is attempting to improve the R and D environment for its pharmaceutical industry and prevent any further decline.
It has noted how government policies in neighbouring Germany have adversely affected the pharmaceutical industry and is keen to avoid a similar fate.
In the past few years a series of healthcare reforms have been introduced in Germany which have persuaded major companies to shift their investment elsewhere.
A 2002 survey by the German industry association, the VFA, showed that almost half of its member companies intended to decrease their R and D expenses in Germany during 2003, with another quarter planning on freezing R and D spending.
For example, Pfizer estimated that it could lose up to US$164 million in annual revenues as a result of the new government reforms and decided to relocate certain staff to its UK operations while also instituting a hiring freeze in Germany.
Similarly, Merck decided not to proceed with the building of a new research complex in Munich.
Taking the initiative In the past year the French government has launched several initiatives to sustain innovation, including reforming the R and D tax credit scheme and creating a new fiscal status for emerging innovative companies. All are designed to improve France's competitive position in the international healthcare industries and make the most of available opportunities.
The initiatives launched by the UK and Spain to improve their R and D positions can serve as an example to France.
The French government has also been following the progress of the EU-focused G10 medicines group, which seeks to improve R and D competitiveness in line with social and public health objectives.
In January 2004, Francis Mer, the French minister for the economy, finance and industry, and Nicole Fontaine, minister delegate for industry, commissioned a fact-finding report entitled PharmaFrance 2004 detailing measures that could improve France's R and D position.
To compile the report a delegation led by Antoine Masson (conseil general des mines, an advisory body within the French Ministry on Economy) visited countries representing major R and D centres in order to hear the views of different companies and organisations involved in the pharmaceutical and biotech sectors.
These recommendations were incorporated into the PharmaFrance 2004 report, which was released in May.
Perhaps one of the less welcome forays of the French government into the pharmaceutical sector was over the fate of Aventis in early 2004.
Although Aventis has been described as a Franco-German company (as a result of the 1999 merger between Germany's Hoechst Marion Roussel and France's Rhone-Poulenc Rorer), in the context of its future, the company's French origins appear to have dominated. Aventis had rejected an offer by its French compatriots Sanofi-Synthelabo for a tie-up and was reportedly considering an alternative approach by Swiss firm Novartis.
However, the French government very publicly opposed any merger with a foreign partner and apparently placed pressure on the two French parties to come to an arrangement.
In April, the heads of the two companies held government-sponsored talks - although ministers were reportedly not present.
Nevertheless, within weeks, Aventis was describing a renewed approach from Sanofi-Synth‚labo as 'friendly improved offer', thus paving the way for the creation of Sanofi-Aventis.
Investors appeared less convinced than the French government about the long-term prospects of the merger and were unhappy that the outcome of the merger was dictated by politics more than finance.
However, the PharmaFrance 2004 report on the state of the French pharmaceutical industry suggested that Sanofi-Aventis would represent a resurgence of France's pharmaceutical sector as it takes up its position as the third largest pharmaceutical company in the world.
